By Dominic Jones | Published: December 18, 2007 | 
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Think retail investors are irrelevant? The feeling’s mutual
NO SURPRISE last week when Thomson Financial reported on a survey of investor relations officers that found just 18% are actively trying to attract new retail investors.IR Magazine has more on the survey, but it basically says that the U.S. investor relations community considers retail investors irrelevant.
Well, there is another side to the story. And that’s the growing body of evidence that the American public feels the same way. They think big corporations with their overpaid CEOs, arrogant IR departments, and legions of bullshit-spouting PR and marketing people are irrelevant, too.
According to Broadridge Financial Services, participation by retail shareholders plummeted in recent proxy votes among companies using the SEC’s new notice-only delivery option for annual meeting materials.
Just 3.4% of retail shareholder accounts voted. That was actually the average. Turnout was even lower at some companies.
In November, the Pew Research Center reported some interesting findings in a study called Tracking the Traders. They wanted to find out how the American public was reacting to the sub-prime mortgage and credit crisis.
Bottom line? The issue wasn’t relevant to the vast majority of people. Only 7% of Americans say they regularly trade stocks and other investments. And fully 46% said they have no money in the stock market, directly or indirectly.
As Securities and Exchange Commission General Counsel Brian G. Cartwright mentioned in his recent speech on deretailization, companies which 50 years ago where 90% owned by retail investors my soon find themselves 90% owned by a handful of institutions.
But that’s what investor relations departments want. They told Thomson Financial they think retail investors are a waste of time. Irrelevant.
I’m not sure where this all leads to, but I wonder what it means for corporate America when the public stops seeing a connection between their personal aspirations and those of business.
Do they stop believing in the American Dream? Do they still have faith in capitalism and the concept of productive investment?
Sorry, forgot, it’s irrelevant to you.
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December 18th, 2007 at 6:56 am
I’m just wandering if they really think having the majority of shareholders as institutional is a good thing..esp for their liquidity of stocks?…also, companies that don’t really treat shareholders equally, esp for those retail shareholders, aren’t they breaching good corporate governence??? no?
December 18th, 2007 at 7:38 am
Dory,
Good questions. I guess liquidity is an issue for smaller companies. For bigger ones, they can count of high portfolio turnover among active institutions for as long as the public remains ignorant of index funds :-)
As for governance, I think you’re on to the real issue. It’s not so much the legal problems, but the fact that people who are treated like crap as investors have a tendency to remember that when acting in their capacities as consumers, workers, voters and community members.
I think it really comes down to whether IR departments are helping or hurting their companies earn a license to operate. And not just in America, but globally.
Of course, the average IRO interviewed by Thomson has no clue that their jobs have anything remotely to do with “license to operate.” Some do get it, but most don’t.
January 14th, 2008 at 3:00 pm
This is great for small caps. If the larger cap IROs are not interested in retail investors, then why aren’t small cap IROs and their consultants going directly after these investors? In their search for liquidity, they could leverage this opportunity as the untapped market.
If brokers would legitimize and research small cap firms, that would help build this market and enable retail customers to purchase some of the companies that have been historically beating the S&P over the past 5 years.
Lastly, how about retail companies? Is there a value for Starbucks, McDonalds, Apple and Microsoft to be owned by retail investors. I think so. There is opportunity with some creative, and innovative IROs and companies in leveraging the channel to investors to build stronger brands and more stable “buy and hold” investors.
January 15th, 2008 at 8:41 pm
BTW: Here’s an example of a company that is reaching reach retail investors cost-effectively and with ROI, is MUNCmedia
http://www.muncmedia.com
January 16th, 2008 at 3:28 am
Hi Enzo,
Tough time for them to be launching a new company, but it looks interesting. Couldn’t access the demo though.
You’re right about smaller firms having an opportunity. But it’s harder for them to manage their online communications when they don’t have the staff to dedicate to it, and the IR firms that typically help these companies haven’t shown me yet that they can do it either.
The thing about the online channel is that you have to manage it actively and build relationships with people. Creating a website and updating it only when you have to hasn’t worked in the past and it definitely won’t work in this era.